1.4. Cultural influences often create externalities, for good and ill. A happy movie might make people smile more, which improves the lives of people who don't see the movie. A fashion trend for tight-fitting clothing might hurt the body image of people who think they won't look good in the trendy clothing.

Let's consider the market for one cultural good that unrealistically raises expectations about the opposite sex: the romance novel.

In romance novels, men are dangerous yet safe, wealthy yet never at work, they ride high-speed motorcycles yet never get in terrible accidents, they look fantastic even though they never waste endless hours at the gym, and so on. (Of course, advertising that focuses on sexy female models may also unrealistically raise expectations about the opposite sex so feel free to change our example as you see best.)

a. Consider the market below. Romance novels impose an external cost on men, who have to try to live up to these unrealistic expectations.

Externalities: When Prices Send the Wrong Signals • C HAPTER 1 0 • 191 Illustrate the effect of this external cost on the figure below.

Price per romance novel Quantity of romance novels

b. Illustrate on the above figure the deadweight loss from the externality, before a tax or other solution is imposed.

c. If the government decides to compensate for the externality by imposing a tax on romance novels, should the tax be high enough to top everyone from reading the novel ? Why or why not?

d. Show graphically how big the tax should be per novel.

e. As long as the government pends the money efficiently, does it matter what the government spend the money from the

"romance novel tax" on? In other word could the government ju t use the money to pay for necessary roads and bridge , or does it need to spend the money to fix the harmful social effects of romance novels?